US equities opened in positive territory today after the drop in non-farm payrolls came in narrower than anticipated – another piece of the macroeconomic puzzle that suggests the recession is moderating.

Since the beginning of the recession in December 2007, 5.7 million US jobs have been lost, with almost 2.7 million jobs eliminated since the beginning of this year alone. However, the latest report from the US Labor Department shows that the pace of job cuts is finally beginning to slow; non-farm payrolls for April fell by 539,000 – a significant improvement over Bloomberg’s median estimates for a 600,000 drop and the 699,000 losses registered in March.

‘We appear to have passed the point of the most severe job losses,’ said Dean Maki of Barclays Capital. ‘It’s still a weakening labour market but it’s weakening less fast. There are a few headwinds to growth, and a recovery will likely be modest.’ [1]

Although the pace of job cuts has slowed, the huge build-up in the number of people unemployed pushed the American unemployment rate from 8.5% in March to 8.9% in April, the highest since September 1983. The data also showed that average hourly earnings rose by 1% to $18.51 last month, while on the year wages grew the least in 40 months by a meagre 3.2%.

These numbers are not exactly pointing to a recovery – for the most part they are beating expectations, but they are still extremely weak. Wall Street euphorically continued to cheer, nevertheless, with the Dow Jones Industrial Average up by 63.17 points (+0.75%) to 8473.02 and the broader S&P 500 7.75 points (+0.85%) above its previous close at 915.14. In contrast, the Nasdaq remained weak, down 7.89 points (-0.57%) to 1381.94.

The spotlight continued to remain on the banking sector today, with Citigroup up 6.56% to $4.06 a share after saying it will convert the government’s preference shares into common stock in order to eradicate the $5.5 billion capital shortfall that was required under the stress tests.

Bank of America was also on the rise today, up 2.5% to $13.85 despite the stress tests showing that it needed to raise $33.9 billion in fresh equity. The rise in value came after chef executive Ken Lewis announced plans to raise new capital without converting any of BoA’s government-held preferred shares into common stock.

Rival Morgan Stanley, which has been deemed as requiring $1.8 billion in new capital, slid 4.35% to $25.96 after saying it would raise more than necessary - $3 billion in debt and $2 billion in equity. The worry here is that Morgan Stanley’s move will dilute the shareholding of existing investors.

The performance of Goldman Sachs and JPMorgan Chase - among the nine banks that do not require additional capital - was mixed today, with the former down by 0.2% to $133.46 and the latter up by almost 4% to $36.63.

[1] Source: Bloomberg News (8 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.